[Click eStock] "LG Electronics, High Possibility of Improved First Half Performance"... Target Price Upward Revised

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities maintained its buy rating on LG Electronics on the 6th, forecasting higher profitability than previously estimated, and raised the target price from 120,000 KRW to 135,000 KRW.

Park Kang-ho, a researcher at Daishin Securities, explained, "Since the announcement of the fourth-quarter results last year, the target price for LG Electronics has been raised," adding, "At a time when the outlook for IT devices has been downgraded due to the global economic downturn and weak consumer demand, only LG Electronics has stood out with a positive perspective."

He continued, "In the short term, fundamental improvements and, in the mid-to-long term, the high growth and profit expansion differentiation of the Vehicle Components (VS) business are evaluated as positive factors at this point," and said, "Through this investor presentation schedule, we reconfirmed the increased possibility of performance improvement in the first half of this year and the long-term competitiveness of the Vehicle Components business."

LG Electronics' operating profit for the first quarter of this year is estimated at 1 trillion KRW, exceeding the consensus estimate of 915.2 billion KRW.

In the first quarter, LG Electronics is expected to record profits across all businesses, with the Vehicle Components business likely to see expanded sales. Researcher Park said, "Compared to the first quarter, when semiconductor, display, and smartphone companies' sales and profitability declined from previous levels, only LG Electronics' profitability is expected to improve compared to previous estimates," adding, "The reason is that in Home Appliances & Air Solutions (H&A), sales growth of premium and new appliances remains stable, while logistics costs have significantly decreased year-on-year, leading to an expected increase in operating profit margin."

As the market leader in premium home appliances, LG Electronics is analyzed to prioritize profitability improvement over sales growth in the first half of this year, amid rising average selling prices (ASP) due to new product launches, and stabilization of logistics costs and major raw material prices.

The TV business (HE) is expected to return to profitability in the first quarter. Although TV demand remains sluggish, aggressive inventory adjustments in the fourth quarter of last year have reduced inventory burdens in the first quarter. On the other hand, focusing sales on organic light-emitting diode (OLED) TVs and efficiently managing their ratio is expected to lead to profitability improvement before sales expansion. Ultimately, cost efficiency in the H&A and HE divisions has increased investment attractiveness from the perspective of profitability improvement within the IT sector in the first quarter.

Furthermore, from a mid-to-long-term perspective, growth in the VS division is clear. As of the end of last year, securing an order backlog of 80 trillion KRW and increased market share and sales in North America through LG Magna are judged to contribute to overall profitability improvement. VS division sales are expected to exceed overall growth with 29.1% growth last year compared to the previous year, followed by 22.1% this year and 18.9% next year.

LG Magna is responsible for high-growth areas such as drive motors and converters and plays an important role in profitability improvement due to its high margin. Other growth areas are expected through cooperation with new automobile manufacturers and Original Design Manufacturing (ODM) and Original Equipment Manufacturing (OEM). Researcher Kim said, "LG Magna has experience in complete vehicle production, and LG Group possesses total solutions in the vehicle components field, making LG Magna an important supplier from the perspective of an outsourcing production strategy," explaining, "The global electric vehicle market is analyzed to increasingly rely on outsourcing production, similar to the smartphone manufacturing environment."